Global sukuk market to continue upward trajectory, says Islamic finance promotion agency

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KUALA LUMPUR (Sept 14): The global sukuk market is set to continue its upward trajectory in 2017 as the fundamentals supporting the issuance of Islamic bonds remain broadly intact, says the Malaysian International Islamic Financial Centre (MIFC).

MIFC, which is affiliated with Bank Negara Malaysia (BNM), said global sukuk issuances stood at US$59.1 billion as of the first half of 2017 (1H17), an increase of 45.6% compared with 1H16.

"The size of global sukuk market saw a double digit growth of 11.7% year-on-year with global sukuk outstanding reaching US$376.6 billion as of 1H17," MIFC said in a report released today.

"The sukuk market has been instrumental in supporting the long-term infrastructure financing gap development of sustainable infrastructure by both public and private sector in a number of countries," it added.

According to MIFC, Malaysia continued to be the main driver in the Islamic capital markets, with the country commanding a 46.4% market share in sukuk issuance currently. As for outstanding sukuk, MIFC said Malaysia's share of the Islamic bond pie stood at 52.6%.

"Malaysia's experience in facilitating the green sukuk issuance by developing the necessary framework and infrastructure for a conducive market of green sukuk is set to become a model in bridging Islamic finance and SRI (Sustainable and Responsible Investment) industry," the Islamic finance promotion agency added.

In the SRI arena, MIFC observed that Malaysia is the pioneer in the world's first green sukuk, as evident by the RM250 million of Islamic bond issued by Tadau Energy Sdn Bhd, which was arranged by Affin Hwang Investment Bank Bhd.

"This first green sukuk is the result of a collaboration between Securities Commission Malaysia, BNM and the World Bank Group, an effort to develop an ecosystem to facilitate the growth of green sukuk and to introduce innovative financial instruments to accommodate global infrastructure needs and green financing," MIFC added.

In the regulatory space, MIFC noted that the SC — as the capital markets regulator and facilitator — has launched SRI Sukuk Framework in 2014, which has enabled the financing of SRI initiatives.

To this, MIFC lauded the move, describing it as "an example of pragmatic move by the regulator to facilitate innovation".

To complement the SRI Sukuk framework and promote greater utilisation of green sukuk as a fundraising channel, MIFC said the SC is offering several incentives to attract green issuers including tax deduction on issuance costs, which is valid until the year of assessment 2020.

Going forward, MIFC said "the growth potential for green sukuk market is indeed timely".

This, it added, is in line with the rising global interest in green financing where innovative fundraising instruments like green and SRI sukuk is deemed as a "viable solution" to address global needs for green and other forms of sustainable and responsible financing.